A vacant and blighted home, covered with red spray paint, sits alone in an east side neighborhood once full of homes in Detroit, Jan. 27, 2013.
Detroit was a loser in the great global economic war that marked the end of the 20th century, its surrender made official yesterday when it filed for Chapter 9 bankruptcy. The defeat is financial, though the city bears some of the hallmarks of an actual war: blocks of homes in ruins; a depleted population that skews old and young; lawlessness; and unsustainable debt incurred fighting against foreign forces.
So what becomes of Motown? The Chapter 11 bankruptcy law, which General Motors and Chrysler filed under, allows a company to eliminate plants, people, and contracts as if they don’t exist once you get court approval. When a city files for Chapter 9 bankruptcy, there are creditors to escape, but no plant or people to walk away from. The city pension agreements—they are known as obligations for a reason —still exist. Detroit’s people are still there – albeit in far fewer numbers — and their needs haven’t changed.
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Detroit’s challenge is to do the same thing its car companies have done: reduce capacity and resize the operation for the 21st century. Sadly, that’s left only one plant fully within Detroit’s city limits — Chrysler’s Jefferson North Jeep plant. Chrysler’s headquarters are teeming with activity, but it’s located in suburban Auburn Hills, while Ford is based in Dearborn. Both close enough to matter, but neither necessarily helping Detroit’s tax base.
Detroit needs to diversify its economy, increase its density and figure out how to attract more people to live there. And it can be done. Just look at Pittsburgh. In the mid-1980s that city was home to 15 Fortune 500 companies. Then the steel industry collapsed in the first industrial meltdown as Japanese and Korean companies flooded the market with cheap metal. Pittsburgh’s legendary companies such as U.S. Steel, National Steel, Jones and Laughlin couldn’t withstand that heat. Like Detroit’s implosion, it was brutal and thousands of people got thrown out of work at once. You can’t close part of a blast furnace.
Yet Pittsburgh has bounced back—smaller and smarter if still scarred. It’s economic base was a bit more diverse than Detroit’s and it has found a lifeline in higher-end metal and medicine, as well as robotics, computer science and other high tech areas. In metals, the region regained its advantage by going upmarket, focusing on high value specialty steels as well as aluminum and titanium.
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In medicine, the University of Pittsburgh Medical Center—which occupies what were the senior executive floors in the former U.S. Steel Building — became the region’s biggest employer. UPMC has made huge investments in Pittsburgh, but also exports its know-how to other countries. In technology, Carnegie-Mellon University has been a font of startups in computer science, robotics, and nanotechnology. The emerging field of biotechnology is a natural outgrowth for both of these institutions.
Pittsburgh has even benefitted from its limiting geography. It sits at the confluence of the Monongahela and the Allegheny rivers, which join to form the Ohio. The Allegheny defines its northern border. The city jumps the Monongahela, but it’s quickly stopped by the coal-bearing hills that once fed its mills. The Monongahela Valley’s communities were hard hit, too, but they are not part of the Pittsburgh municipality. Detroit’s geographic sprawl of 139 sq. mi. (vs. Pittsburgh’s 58 sq. mi.) is one of its main issues, because density promotes efficiency. Pittsburgh’s compact downtown core made redevelopment more efficient and more visible, even beautiful.
Michigan Governor Rick Snyder called the Detroit bankruptcy “our opportunity to stop 60 years of decline.” Perhaps, but it won’t happen in a matter of months, or even a few years. The switch from a manufacturing economy to a mixed technology economy is difficult, because steelworkers or autoworkers can’t become tech workers overnight— or ever in many cases. In Pittsburgh, the process is still evolving. Consider that the downtown didn’t see a new office building constructed for about 20 years after the mid 80s collapse. And it still shares problems with many old northeastern manufacturing centers: huge pension and healthcare obligations, a smaller, older population, and pockets of poverty.
(MORE: Michigan: Its Own Worst Enemy)
Detroit might have a harder time pulling a Pittsburgh, or a Cleveland for that matter. It can’t claim any world-class universities that will develop the next wave of industry. It can claim a huge trove of industrial knowledge. The area’s tool and die shops, for instance, once employed the world’s best industrial craftsmen; but the automakers outsourced too much of this work in their desperation to cut costs. There’s still time to reclaim some of those industrial arts. There’s also hope that the melding of computer circuitry and controls with automotive design has created a demand for a new type of tool and die guy—an automotive software engineer or app developer. That’s an opportunity for one of Detroit’s schools, such as Wayne State, to become a bigger player.
Great Lakes industrial cities such as Pittsburgh and Cleveland have had the “benefit” of going to hell in an earlier era. Detroit is in a much deeper hole: $18 to $20 billion. But Detroit does have an auto industry that is roaring again, which should limit further erosion, and its relatively dense 7.2 sq. mi. downtown is already in rebuilding mode. It has low-cost real estate and— once the bankruptcy winds it way through the courts— investors will have some clarity about future costs of doing business. There is a roadmap for the Motor City—if it can find a way to fund the trip.